April 2015: It’s gambling time

The title of this month’s column doesn’t refer to the Grand National – or the Boat Race – but to the volatile nature of feed prices. Many will be focusing on their future buying strategy for cereals and proteins. Although I don’t have a definitive answer, I suggest looking at past history as part of the planning process.

The Northern Hemisphere winter crops are out of dormancy and growing. We’ve a good indication of the damage caused by winterkill in countries such as Russia, Ukraine and the US, and how much of this has been offset with the spring planting programme.

The South American harvest is effectively complete and we await the confirmed planting schedule for maize and soya in the US.

As it currently stands, global shortages look unlikely and surpluses are expected, giving us the bearish dynamic of easing commodity prices. Furthermore, UK wheat exports have been very sluggish as we struggle to compete against euro-priced material. This could lead to storage issues necessitating rapid sales come May – and localised bargains as a result.

Assuming the US crops this year fare well, there’s little to be concerned by. But, recent history throws up a degree of caution and the need to hedge a wise policy.

One of the key market influences is the World Agricultural Supply and Demand Estimates (WASDE) published by the USDA. Major swings in global supply and demand reported in this publication can have a significant impact on spot and futures prices.

A good example would be to compare the current maize season with 2012/13. The WASDE report in June 2012 gave a global season expectation of 949.93 million tonnes (mt). Then the US drought hit and a month later expected production dropped to 905.23mt, and by August this was 849.01mt – a drop of 100.92mt.

November wheat futures price subsequently went from £171.50/t in June 2012 to £206/t in August, an increase of £35/t.

If we look back slightly earlier, the worst drought in Russia resulted in wheat prices increasing from £110/t in June 2010 to £205/t in May 2011.

Conversely – and another factor to consider in planning the buying strategy – is the increase in global stocks resulting from increased production in the 2013/14 season. This then negatively impacted on cereal price and eased soya back to the current more “acceptable” levels. A further increase in expected production is forecast for the 2014/15 season.

Few are prepared to advise producers when to buy raw materials, knowing the fickle nature of geopolitical situations and global weather conditions. The acceptable soya prices we have now are at March 2012 levels, but it’s worth remembering that four months later prices had increased by £100/t.

But, putting my head above the parapet, the markets have factored in the expected and average yields for agricultural commodities for the season ahead and prices may ease further, barring any aberrant weather occurrences. But please bear in mind the historical events that have significantly impacted on final feed prices.

> Dr Phil Baynes has spent his career in pig welfare and nutrition. Based in Cheshire, he runs Baynes Nutrition and
is a consultant nutritionist to Provimi

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